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Google vs. Microsoft: an Investor's Pros and Cons

Google Inc. (GOOG) and Microsoft Corporation (MSFT) ostensibly operate in different areas of the tech market, the former in search and the latter in software. Be that as it may, however, there is nary a product produced by one that the other hasn’t taken a stab at. For every Google search there’s a Bing, for every Windows there’s Android.

While Apple Inc. (AAPL) sits comfortably atop the tech pyramid with a market cap of $466 billion, Google and Microsoft are in tow, vying with one another for the second place spot. Right now Google has a slight edge, with a valuation of $284 billion to Microsoft’s $276 billion. But of course, that could change in a week. All it takes is one great product or critical misstep on either side, and we’ve got a new number two in town.

Both Google and Microsoft are popular investment opportunities. With the companies in lockstep in terms of overall value, and engaged in such direct competition with one another, we thought it would be interesting to compare them from an investor’s perspective, by match up the two in a few head-to-head categories:

Upcoming Products

Google has been working diligently on the Google Glass, beta testing the wearable tech in several markets. The company is also reportedly developing driverless car technology, which obviously would be a pretty nifty thing. On a less sci-fi front, they’re working on new iterations of Android, a tablet, and possibly a gaming console to compete with Xbox.

Microsoft keeps things decidedly less sexy and more utilitarian. The next major Microsoft product to roll out will be the Surface 2, which is set to be released at midnight on Oct 21. While it should be a significant improvement over the original Surface, it’s not going to be a game changer. After all, we’re talking a product line that caused a $900 million write down for the company last fiscal quarter. After that, it’s the Xbox One, slated for November 22 release.

While the new Xbox will probably be a smash, Google’s upcoming products, though further away from fruition, are simply more exciting. If you think that “wow” factor is just an intangible, look at a company like Tesla Motors (TSLA) . In short, if it’s utility vs. sexy, sexy wins.

Edge: Google

Stability

If Google has the “hey cool gizmo” edge, Microsoft undoubtedly has the edge as far as stability is concerned. Microsoft is older, more entrenched, and sits on a massive cash hoard. Though the it at times appeared directionless under the Ballmer regime, the company at least never lost money, and it would take years to kill.

On the other hand, Google’s flagship product – their search engine – is a relatively new development. Though Google is unquestionably the dominant search engine now, people often forget that Google really only began to take hold a decade ago.

Although Google is by no means in danger of going away forever, their grasp on search could be undone at any time with one amazing algorithm from one nascent start-up. Google has diversified into other product lines aside from search nicely, and buying YouTube was an inspired decision.

But they just don’t boast the stability of an aged, cash-rich behemoth like Microsoft.

Edge: Microsoft

Leadership

One month ago, this would have been no question. Sergey Brin and Larry Page are counted among the most respected leaders in tech, and have spearheaded a company that has gone from having an IPO just ten years ago to being one of the most valuable businesses on the planet. And Microsoft...well, at leaast with regard to Steve Ballmer, if you can’t say anything nice, just point out that the announcement of his resignation caused the company’s stock to spike 7 percent.

But now that Ballmer is leaving, Microsoft’s future is very much up in the air. Several names have been floated as a replacement, from Ford Motors (F) CEO/ turnaround specialist Alan Mulally (likely) to founder Bill Gates (not likely).

But until that matter is decided, and Microsoft finishes their “One Microsoft” restructuring, leadership has to go to Google.

Edge: Google

Analyst Opinion

As neither Google nor Microsoft are exactly esoteric, a bevy of major analyst houses have an opinion on both. At current tally, out of 67 analysts reporting on Google, 42 issue a buy rating, with another 14 giving the company’s shares a hold. Only one, Oracle Investment Research, rated Google's stock a sell. The last eight analysts to initiate coverage on Google gave it a buy. The overall analyst sentiment on Google can probably be best described as cautiously bullish.

Microsoft has a less rosy outlook. Of 45 analysts reporting on the company, only 20 rate the stock a buy, with 24 slapping it with a hold and one, Goldman Sachs, giving it a sell. Though these overall ratings aren’t on the whole incredibly worse than Google’s, the most recent ones certainly are.

Of the last 16 analysts to issue reports on Microsoft, 14 downgraded the company’s stock. In the most recent downgrade, issued by Morgan Stanley (MS) , analyst Keith Weiss cited Microsoft’s smartphone play in buying Nokia as “risky” and the chances of it being a net positive for the company were slim.

Again, Google has the clear edge.

Edge: Google

Final Score: Google 3, Microsoft 1

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